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Journal of Systems Science and Complexity

, Volume 30, Issue 5, pp 1084–1096 | Cite as

Credit risk transfer in SME loan guarantee networks

  • Aolin LengEmail author
  • Guangyuan Xing
  • Weiguo Fan
Article

Abstract

Joint loan guarantee contracts and mutual guarantee contracts among SMEs form the basis of SME guarantee networks. The expansion of these networks increases the fragility of a financial system as a result of the regional and industrial risk contagion embedded within them. By providing a theoretical framework of a loan guarantee network, a method is proposed for calculating the amount of risk spillover caused by loan guarantees taking the perspective of the entire network. In addition, the route of risk contagion in guarantee networks is analyzed, revealing that when default risk shocks occur, risk contagion travels along the nodes not once but for several rounds and that the risk control of one firm cannot prevent these systemic risks. Therefore, a risk control scheme is designed based on the location and importance of firms in the network. Using data from a real guarantee network, we demonstrate that identifying the node locations of firms’ in the guarantee network (including the coritivity and closeness of the firm) can help in understanding risk contagion mechanisms and preventing systemic credit risk before a crisis occurs.

Keywords

Closeness coritivity guarantee network risk contagion 

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Copyright information

© Institute of Systems Science, Academy of Mathematics and Systems Science, CAS and Springer-Verlag Berlin Heidelberg 2017

Authors and Affiliations

  1. 1.School of ManagementXi’an Jiaotong UniversityXi’anChina
  2. 2.School of Economics and FinanceXi’an Jiaotong UniversityXi’anChina
  3. 3.Pamplin College of BusinessVirginia TechUSA

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